ECO.5:4.2 - Change terms through the mechanism they create

Compare a small number of feasible constructions. A warranty can make low quality costly to its seller. A choice between service packages can reveal which combination a buyer values. Staged payment can limit exposure to nondelivery. A retained stake or performance payment can change the return to later action.

For each construction, ask separately: will the needed participant choose to enter, and, after entry, which choice becomes worthwhile? Where bounded probabilities and monetary consequences are justified, calculate them. Otherwise state the conditional comparisons and the assumption that would reverse them. Include the cost of verification, enforcement, capital tied up and unpriced consequences.

An observed result must contain useful information about the sought contribution. If the provider can improve the measured result by neglecting another important result, change the terms or the observation. If a signal mostly adds uncontrollable risk, using it can worsen participation without improving the action.